Size of Countries and Fastest Economic Growth

Readers Question: How does the size of a country effect the economic growth rate?

The two largest countries, (in terms of population) are China and India.

By coincidence China and India have the two highest rates of economic growth in the world. (China about 10.9%, India 7.0%)

However, this does not prove that populous countries will always have the highest rate of growth. For example, if we went back to the 1960s, it was likely China had a negative growth rate during the disastrous ‘great leap forward’ of Mao where upto 20 million died of starvation. One reason why China and India have a fast growth rate is that there is a lot of ‘catching up’ to do. e.g China’s old state owned industries were very inefficient and at the moment there are many potential efficiency gains.

The number of people in a country is not important, the key issues is how the economy is organised and whether a countries natural resources are utilised.

In a sense, China’s high population is helping the countries economic growth. There are so many Chinese workers willing to work for low wages, the labour supply curve is almost perfectly elastic; this has enabled Chinese exports to remain very competitive.

Richest Countries and the Size of A Country

Another interesting question to ask is whether the richest countries in terms of GDP per Capita have high populations?

1. Luxembourg … $56,380
2. Norway … $51,810
3. Switzerland … $49,600
4. United States … $41,440
5. Denmark … $40,750
6. Iceland … $37,920
7. Japan … $37,050
8. Sweden … $35,840
9. Ireland … $34,310
10. United Kingdom … $33,630

From the table we can see that, with the exception of United States and Japan, it tends to be small countries who dominate.

By on February 1st, 2008